What to Do When Relatives Ask for Loans

US News has some thoughts on what to do when relatives ask for loans including the following:

• Consider saying "No"—firmly. Declining a request for help, while painful, is sometimes the best decision a person can make, especially since many loans never get paid back.

• Look for nonmonetary alternatives (i.e. loan out a car.)

• Put all loans and gifts in writing. Relatives lending over $1,000 should draw up a simple document describing the terms of the loan, including the interest rate and schedule for repayment, recommends Jennifer Streaks, a financial services attorney in Washington, D.C.

• Get help online. For a fee, peer-to-peer lending sites allow friends and family to formalize the loans they make to each other.

Here's what we've done on the few times we've been asked for a loan from family (and friends for that matter):

1. Get all the details. How much do they want, what do they need it for, what other alternatives do they have, etc.

2. If we think it's a reasonable request and we want to help, we GIVE them the money. This eliminates all the "you owe me money" sort of vibes that can derail close relationships.

3. If we don't think it's a reasonable request, we decline and try to point them in the right direction. In most cases, this is a suggestion that they get some financial counseling. Giving money to someone who's not prepared to use it correctly is not helpful to them or to us.

One other thought: one peer-to-peer company is LendingClub. They are also a sponsor here at Free Money Finance. I'd suggest you check them out if you're at all interested in borrowing in this way (or if you'd like to lend money to others.)

Comments

[ekrabs]

What I do when relatives ask for money:

1. Get bug-eyed.
2. Stare into imaginary space six inches beyond their space.
3. Lower both sides of my lips.
4. Curl fingers up like talons.
5. Belt out a low, linger "NOOOOOOOOOOOOooooooo!"

I'm teasing... but not really.

It'd help if the request was a legitimate emergency or something. The upside is that you only have to deal with them only once. Usually.

[Krazy Eyes]

My wife's father has "borrowed" money from us three times in the 17 years we've been together. He's never paid us back and each time it has created a increasing strain in their relationship. I'm not sure how we would handle a fourth request -- probably just saying no or as FMF suggests, hearing why he needs the money and just giving it to him with no strings attached (since that's what ultimately it would be even if we loaned it).

[texashaze]

Just like FMF, we will just GIVE the money if it's a legitamite request. As others have posted when one borrows and can't repay this usually causes severe strain. Remember "borrower is SLAVE to the lender". Usually though when someone has to borrow money they really need it or they can't manage money. When they just can't manage money I find tough love the best medicine as they MUST learn the hard way how to manage money right.

Note that I have been on the recieving end of borrowing. Back when you really needed a down payment on a house we borrowed from parents to cover the gap we didn't have. We repaid it early and grateful.

[Mr. ToughMoneyLove]

I agree with the FMF recommendation to send your relative to one of the peer-to-peer lending sites. It will save you a lot of stress and strain on your family relationships. Those of you who lend money to family repeatedly after they don't pay you back? You are enablers - not helpful at all.

[Trent D.]

Suggestion 1 - Talk to your significant other about this potential occurrence before it happens. Develop a plan for how you'll deal with it so you're not scrambling and blindsided by a request.

Suggestion 2 - Go with the "gift" route. Don't risk destroying an important relationship over money.

[TStrump]

What's worse than loaning money to relatives is to co-sign a loan, which is what I did. Oops!
Won't do that again. Don't think I will be ripped off, but the stress isn't worth it.

[MasterPo]

Make 'em sign a note!!!

To make a long story short, I recently gave a personal loan to some close friends who were about to loose their home. I required a note. They are paying it back on schedule and I dp expect full repayment. But I still want my note!

As they kept saying in the Godfather "This is business, not personal."

[MasterPo]

ps- Regarding co-signing: I wouldn't co-sign a loan for anybody. Not even my wife or kids. (and they know it)

When relatives ask me for loans, I, with a deer-in-headlights look, bat my eyes, and say...

Moi??? Vous me gotta be kidding!

[Greg]

First answer: No

However, this can be followed up with an offer to coach and mentor in finances...the old "Teach a man to fish..."

The big reason for "No" is that they come to look at you as the source of relief for financial issues.

Never loan more than you can lose.

Always get a note specifying terms. I had a roommate that would not spot money without an IOU, be it a $1 or a $20.

Never, ever cosign. If you can not loan it, do not cosign for it. If the purchase is something big like a car, loan as much cash as needed so cosigning is not necessary.

If "No" is the answer, be prepared for a backlash.